China Agri-Business Reports Higher Results for the First Quarter 2010
XI'AN, China, May 18 /PRNewswire-Asia-FirstCall/ -- China Agri-Business, Inc. ("China Agri-Business" or "the Company," OTC Bulletin Board: CHBU), a manufacturer and distributor of organic agricultural application products in China, today reported higher sales, net income, and earnings per share for the first quarter 2010.
First quarter 2010 highlights
-- Sales increased 228% to $1,540,941 in the first quarter 2010 from
$469,572 in the first quarter 2009.
-- Gross profit increased 109% to $675,823 in the first quarter 2010 from
$323,330 in 2009.
-- Net income increased 210% to $331,808 in the first quarter 2010 from
$106,916 in the first quarter 2009.
-- Basic earnings per common share increased 200% to $0.03 in the first
quarter 2010 from $0.01 in the first quarter 2009.
-- Diluted earnings per common share increased 100% to $0.02 in the first
quarter 2010 from $0.01 in the first quarter 2009.
-- As of April 30, 2010, China Agri-Business had established about 250
Direct sales stores and about 100 Super chain branded stores.
Mr. Liping Deng, Chief Executive Officer, President, and Director of China Agri-Business, Inc., said, "In the first quarter this year, we accelerated our initiative called the 'New Agriculture-Generator.' Our primary objective in this initiative is to expand our business by creating our own network of direct sales stores for our products and also by partnering with existing stores to create a super chain of branded stores that feature China Agri-Business products. This initiative should create much closer relationships for us with farmers in the rural areas of China where our direct sales stores and the super chain branded stores are located.
"By the end of April 2010, we had established about 250 direct sales stores, controlled and managed by us, and about 100 super chain branded stores. We are still in the early stage of this expansion. These two distribution channels in the first quarter of 2010 together accounted for 80.84 percent of our sales, while the traditional sales distribution network, which consists of independent wholesalers, distributors, and retailers, provided the remaining 19.16 percent of our sales in the quarter.
"We expect to continue adding direct sales stores and believe that by yearend 2010, we could have as many as 500 direct sales stores selling our products."
In addition to the Company's continued work to expand its markets and sales, the Company acquired a new product license to produce potassium and magnesium fertilizer on February 14, 2010. The license cost was about $117,000, and the cost for the associated production equipment was about $293,000. The Company believes that acquiring licenses to existing products will enable it to increase revenues more quickly than by relying solely on developing its own new products. China Agri-Business will continue to look for similar licensing opportunities.
Mr. Deng added, "We are continuing to open new direct sales stores and add super chain branded stores to increase sales by selling directly to farmers and by giving them knowledge and technical assistance. We believe that our organic agricultural application products help the farmers improve the quality and yield of their crops, which in turn, should increase our sales and further support our growth and success. While our rapid expansion temporarily depresses our margins and net income, we are highly confident that they will eventually rebound.
"We are encouraged by the early results from our strategy and the highly positive feedback we have received from our clients and partners.
"With our long-term growth programs, including our continuing store expansions, we believe our actions will create long-term value for our shareholders. The first quarter was a great start to what we think will be a very productive year."
Sales
China Agri-Business manufactures and markets more than 50 organic biochemical agricultural application products, including non-toxic fertilizers, bactericides, and fungicides, that are used in farming. Crops grown with the Company's products are eligible to qualify for the "AA Green Food" rating in China.
Total sales increased $1,071,369 or 228% to $1,540,941 in the three months ended March 31, 2010 from $469,572 in the three months ended March 31, 2009. The increase in sales was attributable to positive responses to the Company's "New Agriculture-Generator" campaign, which is designed to expand its distribution network directly with farmers and to establish a closer relationship with them through agricultural cooperatives in the rural areas of China. The New Agriculture-Generator campaign's results are included in the distribution channels named Direct sales stores and Super chain branded stores.
Sales by distribution channel
Three Months Ended
March 31, 2010 March 31, 2009
Direct sales stores $ 1,062,461 68.95% $ -- 0.00%
Super chain branded stores 183,281 11.89% 26,010 5.54%
Traditional sales network 295,199 19.16% 443,562 94.46%
Total Sales $ 1,540,941 100.00% $ 469,572 100.00%
Sales from Direct sales stores were $1,062,461 in the first quarter 2010, and represented 68.95% of total sales in the quarter. The Company had no Direct sales stores in the first quarter 2009.
Sales from Super chain branded stores increased $157,271 or 605% to $183,281 in the first quarter 2010 from $26,010 in the first quarter 2009. Super chain branded stores represented 11.89% of total sales in the first quarter 2010 and 5.54% of total sales in the first quarter 2009.
Sales from the Traditional sales network decreased $148,363 or 33% to $295,199 in the first quarter 2010 from $443,562 in the first quarter 2009. Sales from the traditional sales channel represented 19.16% of total sales in the first quarter 2010 and 94.46% of total sales in the first quarter 2009.
As of April 30, 2010, China Agri-Business had established approximately 250 Direct sales stores, which are controlled and managed directly by the Company, and approximately 100 Super chain branded stores. The majority of these stores are located in Shaanxi and Hunan provinces.
Cost of goods sold, gross profit, and gross profit margin
Cost of goods sold increased $718,876 or 492% to $865,118 in the first quarter 2010 from $146,242 in the first quarter 2009. Gross profit increased $352,493 or 109% to $675,823 in the first quarter 2010 from $323,330 in the first quarter 2009.
The gross profit margin was 43.86% in this year's first quarter, a decrease of 25 percentage points from 68.86% in last year's first quarter. The increase in cost of goods sold and decrease in gross profit margin was attributable to the new direct sales stores. To attract more farmers to the direct sales stores, in addition to selling products manufactured by China Agri-Business, the direct sales stores also sell fertilizer products manufactured by third parties. For the three months ended March 31, 2010, total sales of third-party products was $870,754 or 57% of total sales.
The following table shows China Agri-Business sales, cost of goods sold,
gross profit, and gross profit margins by distribution channel for the first
quarter 2010.
Direct Sale Branded Traditional
Total Stores Stores Sales
Three Months Sales $1,540,941 $1,062,461 $183,281 $295,199
Cost of Goods Sold 865,118 722,439 54,600 88,079
Gross Profit $675,823 $340,022 $128,681 $207,120
Gross Profit Margin 43.86% 32.00% 70.21% 70.16%
Operating and other expenses for the first quarters of 2010 and 2009.
Three Months Ended March 31,
2010 2009
Gross Profit $675,823 $323,330
Selling and marketing 153,119 56,400
Professional fees 44,750 29,000
Depreciation and amortization
expenses 11,817 11,843
Other general and administrative
expenses 85,573 67,108
Total selling, general and
administrative expenses 295,259 164,351
Income from operations 380,564 158,979
Interest income 6,479 4,519
Interest expense (55,235) (56,582)
Net Income $331,808 $106,916
Selling and marketing
Selling and marketing expenses increased $96,719 or 171% to $153,119 in the first quarter 2010 from $56,400 in the first quarter 2009. The increase in selling and marketing expenses was primarily attributable to the expansion of our direct sales stores.
Professional fees
Professional fees increased $15,750 or 54% to $44,750 in the first quarter 2010 from $29,000 in the first quarter 2009. Professional fees consist of audit and review fees, legal and attorney fees, director fees, and contracted professional service fees. The Company expects such expenses will remain high in the future because it is a public company.
Other general and administrative expenses
Other general and administrative expenses increased $18,465 or 28% to $85,573 in the first quarter 2010 from $67,108 in the first quarter 2009. Higher other general and administrative expenses in the first quarter 2010 were attributable to increased research and development expenses and other expenses related to the expansion of the direct sales stores. Other general and administrative expenses primarily consist of wages and related benefits, research and development expenses, rent and utility expenses, office expenses, bad debt expense, and travel and miscellaneous expenses.
Income from operations
Income from operations increased $221,585 or 139% to $380,564 in the first quarter 2010 from $158,979 in the first quarter 2009. The increase in income from operations primarily resulted from the "New Agriculture-Generator" campaign and expansion of the direct sales network.
Interest expense
Interest expense decreased $1,347 or 2% to $55,235 in the first quarter 2010 from $56,582 in the first quarter 2009. The interest expense of $55,235 in the first quarter 2010 consisted of amortization of deferred financing costs of $25,098, amortization of fair value of warrants of $18,421, amortization of beneficial conversion feature of $6,109, and loan interest of $5,607. These expenses related to the convertible notes issued in September 2008.
Net income
Net income increased $224,892 or 210% to $331,808 in the first quarter 2010 from $106,916 in the first quarter 2009. The increase in net income primarily resulted from the "New Agriculture-Generator" campaign and expansion of the direct sales network.
Foreign currency translation
The functional currency of the China Agri-Business operating company in China (Shaanxi Xinsheng Centennial Agriculture and Technology Co., Ltd.) is the renminbi ("RMB"), also known as Chinese yuan. China Agri-Business financial position and results of operations, reported in U.S. dollars, are affected by changes in the exchange rates between the RMB and the dollar.
Liquidity and capital resources
As of March 31, 2010, cash and cash equivalents totaled $9,412,048, a decrease of $213,609 from $9,625,657 as of December 31, 2009. As of March 31, 2010, 83% of the Company's assets consisted of cash and cash equivalents, as compared with 87% as of December 31, 2009.
Net cash provided by operating activities was $205,744 and $136,842 for the three months ended March 31, 2010 and 2009, respectively. The increase resulted from the increase in net income in the three months ended March 31, 2010.
Net cash used in investing activities was $416,569 for the three months ended March 31, 2010. In the first quarter of 2010, the Company acquired additional product rights for $117,200 (800,000 RMB) and related machinery and equipment from a vendor for $293,000 (2,000,000 RMB). In the first quarter 2010, the Company also spent $6,370 on other equipment. During the first quarter 2009, the Company received total proceeds of $131,760 from the disposal of unused equipment and product rights and spent $608 on equipment.
Net cash used in financing activities was $2,141, which was a repayment of long-term debt, in the three months ended March 31, 2010. The Company had no financing activities in the first quarter 2009.
The Company presently does not have any available credit, bank financing, or other external sources of liquidity. It believes that its existing cash resources will be sufficient to meet its existing operating requirements for the foreseeable future. However, the Company is seeking opportunities to expand its manufacturing and distribution capabilities in the PRC that may require an investment beyond its existing cash resources. Accordingly, China Agri-Business expects that it will require additional funding through additional equity and or debt financings. However, there can be no assurance that any additional financing will become available to the Company, and if available, on terms acceptable to it.
The conversion of China Agri-Business outstanding notes and exercise of its outstanding warrants into shares of common stock would have a dilutive effect on its common stock, which could in turn reduce its ability to raise additional funds on favorable terms. In addition, the subsequent sale on the open market of any shares of common stock issued upon conversion of its outstanding notes and exercise of its outstanding warrants could affect its stock price which could in turn reduce its ability to raise additional funds on favorable terms.
Any financing, if available, may involve restrictive covenants that may affect the Company's ability to conduct its business or raise additional funds on acceptable terms. If it is unable to raise additional capital when required or on acceptable terms, it may have to delay, scale back, or discontinue its expansion plans and its business may be adversely affected.
About China Agri-Business, Inc.
China Agri-Business, Inc., through its operating company in China, Shaanxi Xinsheng Centennial Agriculture and Technology Co., Ltd. (Xinsheng), manufactures and sells non-toxic fertilizer, bactericide, and fungicide products used for farming in China. Crops grown with Xinsheng's products are eligible to qualify for the "AA Green Food" rating administered by the China Green Food Development Center, an agency under the jurisdiction of the Ministry of Agriculture of the People's Republic of China (however, the Company's products themselves do not bear the "AA green food" designation). The green food rating system consists of an "A" rating and a more stringent "AA" rating. The "AA" rating indicates that the crops contain minimal chemical residue from fertilizers.
The Company's two primary product groups are organic fertilizer (Xinsheng Luyuan brand) and bactericides (Xinsheng Lufeng brand). China Agri-Business has a total of five brands and produces more than 50 different applications, including products designed to stimulate plant growth, condition soil, and prevent and cure plant diseases and parasites. The Company has products for a variety of crops, including fruit plants, orchard trees, vegetables, potatoes, and cotton. The products can be used either alone or to supplement other products. The Company's Xinsheng manufacturing facilities are located in Xi'an, Shaanxi province, China.
For more information about China Agri-Business, please visit http://www.chinaagri-business.com .
Safe Harbor and Cautionary Statement
This press release contains forward-looking statements. These statements can be identified by the use of forward-looking terminology such as "believes," "plans," "will," "intends," "seek," "scheduled," "future," "potential," "continue," "estimates," "anticipates," "hopes," "goal," "objective," "expects," "may," "should," "could" or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. We caution you that no statements contained in this news release should be construed as a guarantee or assurance of future performance or results. You should not place undue reliance upon any forward-looking statements. Forward-looking statements involve risks and uncertainties, including those discussed under "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2009 and in other reports we file with the Securities and Exchange Commission ("SEC"). The actual results that we achieve may differ materially from any forward-looking statements due to the effect of such risks and uncertainties. These forward-looking statements are based on current expectations, and, except as required by law, we assume no obligation to update this information whether as a result of new information, future events or otherwise. Readers are urged to carefully review and consider the various disclosures made by us in our Annual Report on Form 10-K for the year ended December 31, 2009 and in our other reports we may file with the SEC that attempt to advise interested parties of the risks that may affect our business, financial condition and results of operations.
For more information, please contact:
Delong Zhou
Chief Financial Officer
Tel: +1-917-825-2997
Email: [email protected]
China Agri-Business, Inc.
Building 2, Unit 1, 15th Floor
Ling Xian Xin Cheng
86 Gaoxin Road
Hi-Tech Industrial Development Zone
Xi'an, Shaanxi, China 710065
Tel: +86-29-6859-6556 or 6557
Web: http://www.chinaagri-business.com
Christensen
Mr. Yuanyuan Chen (English and Chinese)
Tel: +86-10-5971-2001 in Beijing
Mobile: +86-139-2337-7882 in Beijing
Email: [email protected]
Mr. Tom Myers (English)
Mobile: +86-139-1141-3520 in Beijing
Email: [email protected]
Ms. Kathy Li (English and Chinese)
Tel: +1-212-618-1978
Email: [email protected]
Financial statements follow.
China Agri-Business, Inc.
Condensed Consolidated Statements of Income and Comprehensive Income
(Unaudited)
For The Three Months
Ended March 31,
2010 2009
Sales of products $1,540,941 $469,572
Cost of goods sold 865,118 146,242
Gross profit 675,823 323,330
Selling, general and administrative
expenses 295,259 164,351
Income from operations 380,564 158,979
Interest and other income 6,479 4,519
Interest expense (55,235) (56,582)
Income before income taxes 331,808 106,916
Income taxes -- --
Net income $331,808 $106,916
Earnings per common share:
Basic $0.03 $0.01
Diluted $0.02 $0.01
Weighted average number of common
shares used to compute earnings per
common share:
Basic 12,958,574 12,958,574
Diluted 13,958,574 13,958,574
Comprehensive Income:
Net income $331,808 $106,916
Other comprehensive income - foreign
currency translation adjustment (643) (11,032)
Comprehensive Income $331,165 $95,884
The accompanying notes are an integral part of these financial statements.
China Agri-Business, Inc.
Condensed Consolidated Balance Sheets
March 31, December 31,
2010 2009
(Unaudited)
Assets
Current Assets
Cash and cash equivalents $9,412,048 $9,625,657
Accounts receivable, net of
allowance for doubtful accounts of
$12,533 and $8,300, respectively 39,349 28,310
Inventory 221,775 138,253
Other receivables 7,911 7,911
Prepaid expenses 15,351 25,396
Total Current Assets 9,696,434 9,825,527
Property, plant and equipment, net of
accumulated depreciation of $215,046
and $202,921, respectively 625,239 337,995
Investment in Tienwe Technology 879,000 879,000
Deferred financing costs, net of
accumulated amortization of $159,648
and $134,550, respectively 47,634 72,732
Intangible assets, net of accumulated
amortization of $13,536 and $13,115,
respectively 120,503 3,724
Total Assets $11,368,810 $11,118,978
Liabilities and Stockholders' Equity
Current Liabilities
Current portion of long-term debt $8,923 $8,779
Current portion of convertible
notes, net of unamortized debt
discounts of $47,969 and $72,499,
respectively 452,031 427,501
Accounts payable and accrued
liabilities 182,406 286,128
Total Current Liabilities 643,360 722,408
Long Term Liabilities
Long-term debt 103,333 105,618
Total Long Term Liabilities 103,333 105,618
Total Liabilities 746,693 828,026
Stockholders' Equity
Undesignated preferred stock, par
value $.001 per share; authorized
4,900,000 shares; none issued -- --
Common stock, par value $.001 per
share; authorized 100,000,000
shares, issued and outstanding 12,958,574
and 12,958,574, respectively 12,959 12,959
Additional paid-in capital 4,370,212 4,370,212
Retained earnings 5,040,281 4,708,473
Accumulated other comprehensive income 1,198,665 1,199,308
Total stockholders' equity 10,622,117 10,290,952
Total Liabilities and Stockholders'
Equity $11,368,810 $11,118,978
The accompanying notes are an integral part of these financial statements.
China Agri-Business, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the Three Months
Ended March 31,
2010 2009
Operating activities
Net income $331,808 $106,916
Adjustments to reconcile net income
to net cash provided by
operating activities:
Provision for (reduction in)
allowance for doubtful accounts 4,233 70
Depreciation of property, plant and
equipment 12,125 10,262
Amortization of intangible assets
and deferred financing costs 25,519 30,421
Amortization of debt discount and
fair value of warrants 24,530 25,458
Changes in operating assets and liabilities:
(Increase) / decrease in accounts
receivable (15,272) 7,221
Increase in inventory (83,522) (18,104)
(Increase) / decrease in prepaid
expenses 10,045 (7,096)
Decrease in accounts payable and
accrued liabilities (103,722) (18,306)
Net cash provided by operating activities 205,744 136,842
Investing activities
Proceeds from return of unused
manufacturing equipment and
production rights to respective
vendors for cash equal to the
asset's current Company book value -- 131,760
Purchase of equipment (299,369) (608)
Purchase of products rights (117,200) --
Net cash provided / (used) in
investing activities (416,569) 131,152
Financing activities
Repayment of long-term debt (2,141) --
Net cash (used in) financing activities (2,141) --
Effect of exchange rate changes on
cash and cash equivalents (643) (9,664)
Increase / (decrease) in cash and cash
equivalents (213,609) 258,330
Cash and cash equivalents, beginning
of period 9,625,657 8,312,636
Cash and cash equivalents, end of
period $9,412,048 $8,570,966
Supplemental Disclosures of Cash Flow
Information:
Interest paid $1,857 $--
Income taxes paid $-- $--
The accompanying notes are an integral part of these financial statements.
China Agri-Business, Inc.
Condensed Consolidated Statements of Stockholders' Equity
For the Three Months Ended March 31, 2010 (Unaudited) and the Year Ended
December 31, 2009
Common Additional
Common Stock Stock Paid-in
Shares Amount Capital
Balance, December 31, 2008 12,958,574 $12,959 $4,369,786
Fair value of additional warrants
issued to Placement Agent -- -- 426
Net income for the year ended
December 31, 2009 -- -- --
Foreign currency translation
adjustment -- -- --
Balance, December 31, 2009 12,958,574 12,959 4,370,212
Net income for the three months
ended March 31, 2010 (Unaudited) -- -- --
Foreign currency translation
adjustment -- -- --
Balance, March 31, 2010 (Unaudited) 12,958,574 $12,959 $4,370,212
China Agri-Business, Inc.
Condensed Consolidated Statements of Stockholders' Equity (Continued)
For the Three Months Ended March 31, 2010 (Unaudited) and the Year Ended
December 31, 2009
Accumulated
Other
Retained Comprehensive
Earnings Income Total
Balance, December 31, 2008 $3,654,212 $1,185,676 $9,222,633
Fair value of additional warrants
issued to Placement Agent -- -- 426
Net income for the year ended
December 31, 2009 1,054,261 -- 1,054,261
Foreign currency translation
adjustment -- 13,632 13,632
Balance, December 31, 2009 4,708,473 1,199,308 10,290,952
Net income for the three months
ended March 31, 2010 (Unaudited) 331,808 -- 331,808
Foreign currency translation
adjustment -- (643) (643)
Balance, March 31, 2010 (Unaudited) $5,040,281 $1,198,665 $10,622,117
The accompanying notes are an integral part of these financial statements.
SOURCE China Agri-Business, Inc.
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